Key point 6-01.03. A church is an unincorporated association if it is not a corporation in good standing under state law. This status can occur in a number of ways, including the following: (1) a church never was incorporated; (2) a church was incorporated, but the period of duration specified in its charter has expired; or (3) a church was incorporated, but its corporate status lapsed under state law because of its failure to submit annual reports to the office of the secretary of state.
In general, an unincorporated association is created by the voluntary association of two or more individuals under a common name for a particular purpose. The creation of an unincorporated association ordinarily does not require compliance with state laws, although several states have enacted laws allowing associations to organize in a more formal way. Such laws typically confer many of the rights and privileges enjoyed by corporations upon associations that choose to formally organize.
It is customary and desirable for the members of an unincorporated association to adopt rules for the internal management of the affairs of the association. Although these rules usually are called bylaws, they occasionally are called articles of association, constitution, or charter. Such terminology is not important.19 Cunningham v. Independent Soap & Chemical Workers, 486 P.2d 1316 (Kan. 1971).In this chapter, the rules and regulations of an unincorporated association will be referred to as bylaws. The bylaws of an unincorporated association typically contain provisions dealing with meetings; election, qualification, and tenure of officers and trustees; qualification and acceptance of members; the acquisition and transfer of property; the status of property upon the dissolution of the association; and the rights and duties of members among themselves and with the association.
The bylaws of an unincorporated association constitute a contract between the association and its members, and that the rights and duties of members, as between themselves and in their relation to the association in all matters affecting its internal government and the management of its affairs, are measured by the terms of such bylaws.20 Savoca Masonry Co., Inc. v. Homes & Son Construction Co., Inc., 542 P.2d 817, 820 (Ariz. 1975).By becoming a member an individual agrees to be bound by the association’s bylaws, and to have his rights and duties determined by them.21 Libby v. Perry, 311 A.2d 527 (Me. 1973).
The members of an unincorporated association may vote to incorporate their organization and transfer title to all properties to the new corporation. A minority of the unincorporated association’s members are without authority to block such a transfer.22 Jacobs v. St. Mark’s Baptist Church, 415 So.2d 251 (La. App. 1982).
Although the Internal Revenue Code restricts tax-exempt status to corporations, community chests, funds, and foundations organized and operated exclusively for religious and other charitable purposes,23 I.R.C. § 501(c)(3).the IRS construes the term corporations to include unincorporated associations.24 Treas. Reg. § 1.501(c)(3)-1(b)(2); IRS Publication 557.The inclusion of unincorporated associations within the definition of the term corporations is a well-established principle of federal tax law. Section 7701(a)(3) of the Internal Revenue Code defines corporation to include associations, and the federal courts for many years have held that associations possessing at least three of the four principal corporate characteristics of centralized control, continuity, limited personal liability, and transferability of beneficial interests are to be treated as corporations.25 See, e.g., Smith’s Estate v. Commissioner, 313 F.2d 724 (8th Cir. 1963).The exemption available to religious and charitable corporations under the Internal Revenue Code accordingly should be available to most unincorporated associations that meet all of the other conditions for exempt status.